CLIMATE CHANGE AND CARBON BARRIERS TO

TRADE

PRESENTED AT

THE ENERGY AND RESOURCES INSTITUTE

By Raktim Ray (Intern)Resources and Global Security Division

Linking climate change to trade.

The North-South divide

Trade instruments used for the purpose of distorting free trade.

•tariffs• Border Tax measures

•non-tariff barriers

•Quotas

•Product standardization

R&D investments to reduce GHG emissions involves

• Higher compliance Costs

• Higher product prices

Stiff competition from products of developing nations who are not cutting back on emissions as a result of trade

Given the present scenario it is not possible for only the developed nation to take the burden alone

Implementation of greener technology is difficult due to high costs and strict IPR whereas other issues domestically needs to be taken care of for the sake of growth.

Burden should be borne by the developed nations because their contribution to environmental degradation is much more than developing nations.

The Cancun Climate Conference held between 29th

November-11th December 2010 had some useful highlights:*

Establishment of Green Climate Fund(GCF) to support projects, programmes and other activities in developing countries, using thematic funding windows.

Commitment by developed countries transfer $100 billion a year by 2020 to developing countries for adaptation and mitigation.

Invitation to developed country parties to submit information on resources for fast-start financing and long-term finance.

Scaled-up, new and additional, predictable and adequate funding for developing countries for GHG reduction.

*Data source: International Institute for Sustainable development (IISD)

17%

10%

73%

INDIA:EXPORT VOLUME BREAKUP

USA UK,France & Germany Others

21%

8%

71%

CHINA:EXPORT VOLUME BREAKUP

USA UK,France & Germany Others

In all the cases the US is the leading market for Exports followed by the EU with the US being the only

country to have import shares in double figures.

18%

8%

74%

BRAZIL:EXPORT VOLUME BREAKUP

USA UK, France and Germany Others

11%

19%

70%

S.AFRICA:EXPORT VOLUME BREAKUP

USA UK, France and Germany Others

Understanding the existing regulations /policies on trade barriers.

• Mainly developed countries as they are footing the major costs for climate change.

The countries framing the policies:

• Mainly developing countries due to their large share of exports to developed countries and also due to incomplete implementation of greener technology.

The countries being affected:

• Identifying the sectors that are most vulnerable

• Overall impact on the volume of trade between countries

Estimating the impact on export volumes as a result of the trade barriers:

US

Waxman-Markey Bill

European Union

French prime minister of 2006 suggested that countries who do not sign up for a post 2012 international

treaty on climate change could potentially face extra tariffs on their

industrial exports. In early 2008 the EC discussed the idea of implementing a

de-facto carbon tax on products of countries which do not similarly restrict

their GHG emissions.

These policies pose an initiative for conflict between the two parties because the clauses are not in tandem with the WTO

agreements and the agreements in Article XX under GATT

Newly included Part F to Title VII entitled Ensuring Real Reductions in Industrial Emissions has two subparts:

Emission Allowance Rebate ProgramInternational Reserve Allowance

Program

Introduction and passing of the bill by the house of representatives on 26th June 2009.

The “American Clean Energy and Security Act of 2009” authored by US representatives Henry Waxman and Edward Markey.

• Establishing an Emission allowance rebate program commencing no later than 30th June 2011 for eligible industrial sectors, to distribute emission allowances to GHG emitting entities in the US domestic eligible industrial sectors

Emission Allowance

Rebate Program

• To establish an International Reserve Allowance Program no later than 30th June 2018, which would require US importers to purchase and submit international reserve allowances as a condition for being able to import into and sell in the US, goods produced outside the US.

International Reserve

Allowance Program

Our main focus will be on the second part

Imports of the countries which would be exempted are based on conditions laid down in the bill.

Any country determined to meet any of the standards provided in section 767(c).

Any foreign country that the United Nations has identified as the least developed of the developing countries

Any foreign country that the president has determined to be responsible for less than 0.5% of the total world emission of GHGs and less than 5% import of covered goods to the US with respect

to that industrial sector.

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After exclusion of the countries based on the above criteria, the top 10 GHG emitting countries are listed here

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Export Volume

After exclusion of the countries based on the above criteria, the top 10 countries with the highest volume of exports to the US are listed here.

The previous graphs

contained data pertaining to the year 2006 or averaged around 2006

INDIA belongs to both the lists

and will most certainly fall

under the purview of the

bill should it come into

effect.

Another major and obvious

choice from the graphs is China

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Sectoral trade with the US: Top 10 sectors

• Data representation carried out at the two digit HS code level and averaged around 2006.

• Shows the sectors most vulnerable to the implementation of border tax measures on export revenues.

• Sectors were afterwards looked into at the 4 digit level for further detailed study regarding the GHG emission levels.

To arrive at an estimate of the GHG emission levels of the of the sectors, data was collected from the CMIE database regarding inputs quantities. Key inputs considered are

Mineral fuels

Coal

Petroleum oil and gases

Fuel oils

Fuel wood

Electricity energy

Identifying the key industrial sectors based on the level of energy consumption and export share.

Arranging data on the amount of output in physical quantity of the sectors collected from the ASI where the classification is on the basis of NIC codes.

Tabulating and correlating the NIC codes for each of the sectoral classification based on the CMIE database.

DATA SOURCES

ALL DATA ARE SECONDARY IN NATURE

DGFT website: Export data to the US from India were collected according to HS classification both at the 2 and 4 digit levels.

United States International Trade Commission (USITC) website: US import data to all countries not excluded from the reserve program list based on NAICS classification.

UNEP Geostat database: GHG emissions level for the calculation of energy intensity for all countries included in the reserve program list.

CMIE database: Sector wise fuel and electricity consumption data of all companies registered to the database for the purpose of calculating overall carbon content of the products and industries.Annual Survey of Industries(ASI): Quantity of output produced in the various sectors according to NIC 3 digit classification containing products classified under ASICCUN comtrade database for export volumes of developing countries to the US and EU

Even if any other measures of a similar kind does come into being, the time of implementation(2020) is a long way away and the whole trade scenario might change

and along with it the global effects.

India’s export patterns might change sector wise as well as overall with the US

China might emerge as the major exporter of manufactured products to the effect of

monopolizing trade with developed nations

Though the bill has minute possibilities of being put into effect, nevertheless the study would help us to identifying the sectors most potent to fall pray to trade

distortions